What is the Green Deal Scheme?   

The Green Deal is the coalition Government’s flagship carbon emissions reduction project. It is a Conservative idea but has the full backing of the Liberal Democrats. The purpose of the Green Deal is to encourage as many people as possible to take measures to make their homes more energy efficient and it will achieve this by providing all of the upfront finance for such measures by way of a loan.

New legislation is required, in the form of the Energy Security and Green Economy Bill, this is required to allow the project to commence and this bill is expected to be laid before Parliament in the autumn of 2010 with the scheme due to actually commence late in 2012.

Who Can Apply for Green Deal Finance and How?

It is the Government’s intention that there be no restrictions on who can apply for finance through the Green Deal, so potentially all of the UK’s 26 million households could take advantage. It is not means tested in the way that most benefits are and neither an applicant’s current credit commitments nor his past credit history will be taken into account. Applicants do not need to own their home to benefit and where a property is rented, either the landlord or the tenant could apply.

There are no details as to the process for making an application at the moment, but what is known is that an assessment of your home is needed, to establish what measures would be most effective. The cost of this should be included in the loan.                                                      
                                                                                                                                                                                                                                                      How Much Will Be Available From Green Deal?

The Conservatives originally anticipated around £6,500 per home in their election manifesto however the Liberal Democrats would like to see the figure rise to £10,000. Of course, a home will only receive as much as it actually needs.

What Can Be Purchased With Green Deal Finance?

At present the focus seems to be on energy efficiency measures such as insulation, draught proofing and perhaps double glazing, and certainly these will be part of the package, but it is not impossible that the list could be extended to include some microgeneration measures as well.

Currently the incentives for microgeneration installations (i.e. solar panels, wind turbines, heat pumps etc) are the renewable heat incentive and the feed in tariff. Although profitable investments, the major problem with these incentives is that a substantial cash outlay is required which many people simply don’t have. Depending on take up therefore, or if the government is looking for an alternative to what is, after all, a Labour project, it could potentially include microgeneration, though the amount allocated to each household may need to be increased.

Who Will Finance the Loans?

The Government is in talks with some major national retailers, in particular B & Q, Tesco, Marks & Spencer and Virgin, with a view to these or other private sector firms providing the finance and so lessening the burden on the Treasury. It may need to underwrite the loans though in theory because the scheme makes applicants better off, levels of default should be negligible.

It is not known whether the private financiers will profit directly from the loans, in terms of interest payments, or whether they will have to rely on the marketing advantages and the opportunities that will inevitably arise from such things as sales of insulation products or referral fees paid by installers.

How Will the Loan Repayments Be Made?

The loan will be attached to the property’s energy bill and the repayment schedule will be calculated to ensure that the repayments for a given period are less than the resulting energy bill savings, so that from the outset the household will be financially better off.

It is likely that repayments will be collected by the household’s energy provider via the gas/electricity bill, though the details have yet to be finalised. Because of the necessity of ensuring that the repayments are kept below the cost savings, repayment terms will vary in length depending on the amount borrowed and the resulting savings.

How Will the Loans Be Secured?

The loans will attach to the property and not the individual. This gets around the problem of a homeowner having to continue repaying the loan after he has sold up and moved on. Unlike a mortgage however the loan does not need to be repaid upon sale.

Homeowners should be cautious about this. The effect is that when purchasing the property he will be taking on responsibility for the loan and whilst this in itself is not onerous since he will also take the greater benefit of lower fuel bills, there will no doubt be other properties on the market where similar measures have been installed but with Green Deal finance. These properties are unlikely to be any more expensive as a result and so may be more attractive to a potential purchaser, particularly in a buyer’s property market which we have at present.